The document provides a comprehensive overview of mutual funds, including their concept, types, significance, and the intricacies of their operations, including the roles of sponsors, trustees, and asset management companies. It emphasizes the importance of mutual funds for individual investors, highlighting their advantages such as professional management and diversification. Additionally, it outlines various mutual fund structures and investment objectives, illustrating their potential for both capital growth and income generation.

1. About Mutual Fund
1. Concept of Mutual Funds,
2. Types of Mutual Funds,
3. Significance of Mutual Funds,
4. NAV,
5. Evolution & Growth of Mutual Funds,
6. Role of Registrar,
7. Underwriter according to SEBI
guidelines.
1

2. Mutual Funds

3. EducationEducation Earning YearsEarning Years Post Retirement YearsPost Retirement Years
Phase IPhase I Phase IIPhase II Phase IIIPhase III
Age- 22 yrsAge- 22 yrs Age- 60 yrsAge- 60 yrs
MarriageMarriage
Child birthChild birth
Child’s EducationChild’s Education
Child’s MarriageChild’s Marriage
HousingHousing
22 yrs22 yrs 38 yrs38 yrs 10- 20 yrs10- 20 yrs
Human Life Cycle
3

4. 60
Retirement
40
Middle Age
27
Young Married
22
Young Independent
Individual Investor: Life Stages
Earnings
Consumption
Savings
All individuals have a finite period to save for their investment goals
4

5. Value of Money over time
Impact of inflation on monthly
expenses of Rs. 30,000 today
Value of Rs. 100,000 over time
At inflation of 5%
Investors need to beat inflation
30,000
38,288
62,368
79,599
Today 5 years 15 years 20 years
100,000
78,353
48,102
37,689
Today 5 years 15 years 20 years
5

6. OPTIONS FOR INVESTING
• Deposit in Bank – SB, RD, FD’s, Locker ;)
• Loan a Friend/Relative on Interest
• Property Investments
• Invest in Bullion - Gold, Silver..
• Investment in Capital Markets -
- Direct - Equity Share Markets
- Debt & Bonds Market
- Indirect - Mutual Funds
6

7. So what are my alternatives?
• Fixed Interest Products –
– Bank Deposits
– Corporate Deposits
– RBI Bonds
– Corporate Bonds
• Rates of Return?
• Returns – Net of tax?
• Won’t Inflation eat into the
return?
Returns – net of tax/ inflation is poor hedge against inflation
4.54%
1.95%
0.01%
4.54%
2.10%
0.36%
4.54%
2.40%
1.06%
4.54%
2.25%
0.71%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
Bank FD Company FD RBI Bond Co Bonds
Inflation Tax @30% Net Returns
7

8. Why Equities
7.47% 7.12%
10.64% 10.27%
18.25%
Inflation Gold G Secs Bank FD Equities
Source : CLSA
Cumulative annualised returns (1980 - 2004)
Equities – the most attractive
asset class
Equities produce highest long-term returns
8

9. EQUITIES-RISKY & VOLATALIE
BSE SENSEX IN LAST TWO YEARS
9

10. How To Invest In Equities
• Direct Equity
» High risk, high return category.
» Needs a lot of time & expertise.
» Substantial initial capital required.
• Mutual Funds
– One-Time Investment
– Systematic Investment Plan (SIP)
10

11. What is Mutual Fund
• An investment vehicle that is made up of a pool
of funds collected from many investors for the
purpose of investing in securities such as
stocks, bonds, money market instruments and
similar assets. Mutual funds are operated by
money managers, who invest the fund's capital
and attempt to produce capital gains and income
for the fund's investors. A mutual fund's portfolio
is structured and maintained to match the
investment objectives stated in its prospectus.
11

12. • One of the main advantages of mutual funds is
that they give small investors access to
professionally managed, diversified portfolios of
equities, bonds and other securities, which
would be quite difficult (if not impossible) to
create with a small amount of capital. Each
shareholder participates proportionally in the
gain or loss of the fund. Mutual fund units, or
shares, are issued and can typically be
purchased or redeemed as needed at the fund's
current net asset value (NAV) per share, which
is sometimes expressed as NAVPS.a
12

13. Unit-1 Topic #1
Concept of Mutual Funds,
• A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal.
• Anybody with an investible surplus of as little as a few thousand
rupees can invest in Mutual Funds.
• These investors buy units of a particular Mutual Fund scheme that
has a defined investment objective and strategy.
• The money collected is invested by the fund manager in different
types of securities. These could range from shares to debentures to
money market instruments, depending upon the scheme’s stated
objectives.
• The income earned through these investments and the capital
appreciation realized by the scheme are shared by its unit holders in
proportion to the number of units owned by them.
13

14. 14

15. GROWTH IN ASSETS UNDER
MANAGEMENT
15

16. Organization of a Mutual Fund
16

17. Organization of a Mutual Fund
• Mutual Funds in India follow a 4-tier structure.
• The first tier is the sponsor who thinks of starting the
fund.
• The second tier is the trustee. The Trustees role is not to
manage the money. Their job is only to see, whether the
money is being managed as per stated objectives.
Trustees may be seen as the internal regulators of a
mutual fund.
• Trustees appoint the Asset Management Company
(AMC) who form the third tier, to manage investor’s
money. The AMC in return charges a fee for the services
provided and this fee is borne by the investors as it is
deducted from the money collected from them
• The forth tier is the custodian
17

18. Sponsor:
• Establishes a MF, obtains Certificate of Registration from
SEBI, forms a trust, appoints board of trustees & AMC,
appoints Custodian
• Any corporate body which initiates the launching of a
mutual fund is referred to as “The sponsor”.
• The sponsor is expected to have a sound track record
and experience in financial services for a minimum
period of 5 years and should ensure various formalities
required in establishing a mutual fund.
• According to SEBI, the sponsor should have professional
competence, financial soundness and reputation for
fairness and integrity. The sponsor contributes 40% of
the net worth of the AMC. The sponsor appoints the
trustee, The AMC and custodians in compliance with the
regulations. 18

19. Trustees:
• MF managed by body of individuals or a trust company (corporate
body). Guardians of assets of Unit holders. Responsible.
• Sponsor creates a public trust and appoints trustees. Trustees are
the people authorized to act on behalf of the Trust. They hold the
property of mutual fund.
• Once the Trust is created, it is registered with SEBI after which this
trust is known as the mutual fund. The Trustees role is not to
manage the money but their job is only to see, whether the money is
being managed as per stated objectives. Trustees may be seen as
the internal regulators of a mutual fund.
• A minimum of 75% of the trustees must be independent of the
sponsor to ensure fair dealings.
• Trustees appoint the Asset Management Company (AMC), to
manage investor’s money.
19

20. Asset Management Company (AMC)
Investment Manager of Trust. Under the supervision of Board
of Directors, Trustees, SEBI. Floates & manages different
schemes.
• Trustees appoint the Asset Management Company (AMC), to
manage investor’s money. The AMC in return charges a fee for the
services provided and this fee is borne by the investors as it is
deducted from the money collected from them.
• The AMC’s Board of Directors must have at least 50% of Directors
who are independent directors. The AMC has to be approved by
SEBI. The AMC functions under the supervision of it’s Board of
Directors, and also under the direction of the Trustees and SEBI.
• It is the AMC, which in the name of the Trust, floats new schemes
and manage these schemes by buying and selling securities. In
order to do this the AMC needs to follow all rules and regulations
prescribed by SEBI and as per the Investment Management
Agreement it signs with the Trustees.
• Mutual Fund: Formed under Indian Trusts Act, 1982. Invites
subscriptions to units. 20

21. Asset Management Company (AMC) cont…
• The role of the AMC is to manage investor’s money on a day to day
basis. Thus it is imperative that people with the highest integrity are
involved with this activity.
• The AMC cannot deal with a single broker beyond a certain limit of
transactions.
• The AMC cannot act as a Trustee for some other Mutual Fund.
• The responsibility of preparing the OD lies with the AMC.
• Appointments of intermediaries like independent financial advisors
(IFAs), national and regional distributors, banks, etc. is also done by
the AMC.
• Finally, it is the AMC which is responsible for the acts of its
employees and service providers.
21

22. Custodian:
• For safekeeping of securities, participating in clearing system
• A custodian’s role is keeping custody of the securities that are
bought by the fund manager and also keeping a tab on the
corporate actions like rights, bonus and dividends declared by the
companies in which the fund has invested.
• The Custodian is appointed by the Board of Trustees. The custodian
also participates in a clearing and settlement system through
approved depository companies on behalf of mutual funds, in case
of dematerialized securities.
• Only the physical securities are held by the Custodian. The
deliveries and receipt of units of a mutual fund are done by the
custodian or a depository participant at the instruction of the AMC
and under the overall direction and responsibility of the Trustees.
Regulations provide that the Sponsor and the Custodian must be
separate entities.
• Transfer agents: Issue and Redemption of units
22

23. Regulations
• Governed by SEBI (Mutual Fund) Regulation 1996
– All MFs registered with it, constituted as trusts ( under Indian Trusts
Act, 1882)
• Bank operated MFs supervised by RBI too
• AMC registered as Companies registered under Companies Act, 1956
• SEBI- Very detailed guidelines for disclosures in offer document, offer
period, investment guidelines etc.
– NAV to be declared everyday for open-ended, every week for closed
ended
– Disclose on website, AMFI, newspapers
– Half-yearly results, annual reports
– Select Benchmark depending on scheme and compare
23

24. Terminologies Demystified…
• Asset Allocation
– Diversifying investments in different assets such as stocks, bonds, real estate,
cash in order to optimize risk.
• Fund Manager
– The individual responsible for making portfolio decision for a mutual fund, in
line with fund’s objective.
• Fund Offer Document
– Document with investment objectives, risk factors, expenses summary, how to
invest etc.
• Dividend
– Profits given to the investor from time to time.
• Growth
– Profits ploughed back into scheme. This causes the NAV to rise.
24

25. Terminologies Contd…
• NAV
– Market value of assets of scheme minus its liabilities.
• Per unit NAV = Net Asset Value
No. of Units Outstanding on Valuation date
• Entry Load/Front-End Load (0-2.25%)
– The commission charged at the time of buying the fund.
– To cover costs for selling, processing
• Exit Load/Back- End Load (0.25-2.25%)
– The commission or charge paid when an investor exits from a mutual fund. Imposed to discourage
withdrawals
– May reduce to zero as holding period increases.
• Sale Price/ Offer Price
– Price you pay to invest in a scheme. May include a sales load. (In this case, sale price is higher than
NAV)
• Re-Purchase Price/ Bid Price
– Price at which close-ended scheme repurchases its units
• Redemption Price
– Price at which open-ended scheme
25

26. TYPES OF MUTUAL FUNDS
26

27. Based on the structure
• Open-ended Fund
An open-ended fund is a fund that is available for
subscription and can be redeemed on a continuous
basis. It is available for subscription throughout the year
and investors can buy and sell units at NAV related
prices. These funds do not have a fixed maturity date.
The key feature of an open-ended fund is liquidity.
• Close-ended Fund
A close-ended fund is a fund that has a defined maturity
period, e.g. 3-6 years. These funds are open for
subscription for a specified period at the time of initial
launch. These funds are listed on a recognized stock
exchange. 27

28. • Interval Funds
Interval funds combine the features of open-ended and
close-ended funds. These funds may trade on stock
exchanges and are open for sale or redemption at
predetermined intervals on the prevailing NAV.
• Conservative fund Scheme: a scheme that aims at
providing a reasonable rate of return, protecting the
value of investment and achieving capital appreciation is
called a conservative fund scheme. It is also known as
middle of road funds as it offers a blend of the above
features. Such funds divide their portfolio in stocks and
bonds in such a way that it achieves the desired
objective
28

29. Based on investment objectives
• Equity/Growth Funds
Equity/Growth funds invest a major part of its corpus in stocks and
the investment objective of these funds is long-term capital growth.
When you buy shares of an equity mutual fund, you effectively
become a part owner of each of the securities in your fund’s
portfolio. Equity funds invest minimum 65% of its corpus in equity
and equity related securities. These funds may invest in a wide
range of industries or focus on one or more industry sectors. These
types of funds are suitable for investors with a long-term outlook and
higher risk appetite.
• Debt/Income Funds
Debt/ Income funds generally invest in securities such as bonds, corporate
debentures, government securities (gilts) and money market instruments.
These funds invest minimum 65% of its corpus in fixed income securities.
By investing in debt instruments, these funds provide low risk and stable
income to investors with preservation of capital. These funds tend to be less
volatile than equity funds and produce regular income. These funds are
suitable for investors whose main objective is safety of capital with moderate
growth.
29

30. • Balanced Funds
Balanced funds invest in both equities and fixed income instruments
in line with the pre-determined investment objective of the scheme.
These funds provide both stability of returns and capital appreciation
to investors. These funds with equal allocation to equities and fixed
income securities are ideal for investors looking for a combination of
income and moderate growth. They generally have an investment
pattern of investing around 60% in Equity and 40% in Debt
instruments.
• Money Market/ Liquid Funds
Money market/ Liquid funds invest in safer short-term instruments
such as Treasury Bills, Certificates of Deposit and Commercial
Paper for a period of less than 91 days. The aim of Money Market
/Liquid Funds is to provide easy liquidity, preservation of capital and
moderate income. These funds are ideal for corporate and individual
investors looking for moderate returns on their surplus funds.
• Gilt Funds
Gilt funds invest exclusively in government securities. Although
these funds carry no credit risk, they are associated with interest
rate risk. These funds are safer as they invest in government
30

31. • Special Schemes
• Tax-Saving (Equity linked Savings Schemes) Funds
Tax-saving schemes offer tax rebates to investors under
specific provisions of the Income Tax Act, 1961. These
are growth-oriented schemes and invest primarily in
equities. Like an equity scheme, they largely suit
investors having a higher risk appetite and aim to
generate capital appreciation over medium to long term.
• Index Funds
Index schemes replicate the performance of a particular
index such as the BSE Sensex or the S&P CNX Nifty.
The portfolio of these schemes consist of only those
stocks that represent the index and the weightage
assigned to each stock is aligned to the stock’s
weightage in the index. Hence, the returns from these
funds are more or less similar to those generated by the
Index. 31

32. • Sector-specific Funds
Sector-specific funds invest in the securities of only those sectors or
industries as specified in the Scheme Information Document. The
returns in these funds are dependent on the performance of the
respective sector/industries for example FMCG, Pharma, IT, etc.
The funds enable investors to diversify holdings among many
companies within an industry. Sector funds are riskier as their
performance is dependent on particular sectors although this also
results in higher returns generated by these funds.
• Leverage funds: the funds that are created out of investments with
not only the amount mobilized from investors but also from
borrowed money from the capital markets are known as leveraged
funds. Fund managers pass on the benefit of leverage to the mutual
fund investors. Additional provisions must be made for such funds to
operate. Leveraged funds use short sale to take advantage of
declining markets in order to realize gains. Derivative instruments
like options are used by such funds.
32

33. SPECIAL SCHEMES-EXAMPLE
• Funds based on Size of the Companies
Invested in
• Large cap funds:Funds that invest in
companies whose total market cap is above
Rs40bn
Mid cap funds: Funds that invest in companies
whose market cap is between Rs20-40bn
Small cap funds: Funds that invest in
companies whose market cap is below Rs20bn
33

34. Significance of MUTUAL FUNDS
• Expert on your side: When you invest in a mutual fund, you buy into the
experience and skills of a fund manager and an army of professional
analysts
• Limited risk: Mutual funds are diversification in action and hence do not
rely on the performance of a single entity.
• More for less: For the price of one blue chip stock for instance, you could
get yourself a number of units across a number of companies and industries
when you invest in a fund!
• Easy investing: You can invest in a mutual fund with as little as Rs. 5,000.
Salaried individuals also have the option of investing in a monthly savings
plan.
• Convenience: You can invest directly with a fund house, or through your
bank or financial adviser, or even over the internet.
• Investor protection: A mutual fund in India is registered with SEBI, which
also monitors the operations of the fund to protect your interests.
• Quick access to your money: It's good to know that should you need your
money at short notice, you can usually get it in four working days.
• Transparency: As an investor, you get updates on the value of your units,
information on specific investments made by the mutual fund and the fund
manager's strategy and outlook.
• Low transaction costs: A mutual fund, by sheer scale of its investments is
able to carry out cost-effective brokerage transactions.
• Tax benefits: Over the years, tax policies on mutual funds have been
favourable to investors and continue to be so. 34

35. NAV
• Net Asset Value (NAV) is the total asset value (net of expenses) per
unit of the fund and is calculated by the AMC at the end of every
business day. In order to calculate the NAV of a mutual fund, you
need to take the current market value of the fund's assets minus the
liabilities, if any and divide it by the number of shares outstanding.
NAV is calculated as follows:
• For example, if the market value of securities of a Mutual Fund
scheme is 500 lakh and the Mutual Fund has issued 10 lakh units
of 10 each to investors, then the NAV per unit of the fund is 50.
35

36. UNIT-5 (TOPIC#5)
Evolution & Growth of Mutual Funds,
• The Evolution
The formation of Unit Trust of India marked the evolution of the
Indian mutual FUND industry in the year 1963. The primary
objective at that time was to attract the small investors and it was
made possible through the collective efforts of the Government of
India and the Reserve Bank of India. The history of
mutual FUND industry in India can be better understood divided into
following phases:
First Phase – Phase 1. Establishment and Growth of
Unit Trust of India - 1964-87
Unit Trust of India enjoyed complete monopoly when it
was established in the year 1963 by an act of Parliament. UTI
was set up by the Reserve Bank of India and it continued to
operate under the regulatory control of the RBI until the two
were de-linked in 1978 and the entire control was transferred
in the hands of Industrial Development Bank of India (IDBI). UTI
launched its first scheme in 1964, named as Unit Scheme 1964
(US-64), which attracted the largest number of investors in any
single investment scheme over the years.
36

37. Second Entry of Public Sector Funds - 1987-1993
marked the entry of non- UTI, public sector mutual funds
set up by public sector banks and Life Insurance
Corporation of India (LIC) and General Insurance
Corporation of India (GIC). SBI Mutual Fund was the first
non- UTI Mutual Fund established in June 1987. At the
end of 1993, the mutual fund industry had assets under
management of Rs.47,004 crores.
Third Emergence of Private Sector Fund - 1993-96
1993 was the year in which the first Mutual Fund
Regulations came into being, under which all mutual
funds, except UTI were to be registered and governed.
The erstwhile Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund
registered in July 1993. As at the end of January 2003,
there were 33 mutual funds with total assets of Rs.
1,21,805 crores. 37

38. • Fourth Phase – Growth and SEBI Regulation - 1996-
2004 the mutual fund industry witnessed robust growth
and stricter regulation from the SEBI after the year 1996.
The mobilisation of funds and the number of players
operating in the industry reached new heights as
investors started showing more interest in mutual funds.
• Phase V. Growth and Consolidation - 2004 Onwards
The industry has also witnessed several mergers and acquisitions
recently, examples of which are acquisition of schemes of Alliance
Mutual Fund by Birla Sun Life, Sun F&C Mutual Fund and PNB
Mutual Fund by Principal Mutual Fund. Simultaneously, more
international mutal fund players have entered India like Fidelity,
Franklin Templeton Mutual Fund etc. There were 29 funds as at the
end of March 2006. This is a continuing phase of growth of the
industry through consolidation and entry of new international and
private sector players.
38

39. 39

40. Unit-5 Topic # 6
Role of registrar
The organization, usually a bank or a trust company, that maintains
a registry of the share owners and number of shares held for a mutual
fund, bond or stock, and makes sure that more shares are not issued
than are authorized.
• The registrar and transfer agents are appointed by the AMC. AMC pay
compensation to these agents for their services. They carry out the following
functions
• Receiving and processing the application forms of investors
• Issuing unit certificates
• Sending refund orders
• Giving approval for all transfers of units and maintaining records
• Repurchasing the units and redemption of units
• Issuing dividend or income warrents
•
40

41. Fund Accountants
• Fund accountants are appointed by the AMC. The
are in charge of maintaining proper books of
accounts relating to the fund transactions and
management. The perform the following functions
• Computing the net asset value per unit of the
scheme on a daily basis
• Maintaining its books and records
• Monitoring compliance with the schemes,
investment limitations as well as SEBI regulations
• Preparing and distributing reports of the schemes
for the unit holders and SEBI and monitoring the
performance of mutual funds custodians and other
service providers.
41

42. Lead Manager
• Lead manager carry out the following
functions:
– Selecting and coordinating the activities of
intermediaries such as advertising agency,
printers, collection centers.
– Carrying out extensive campaign about the
scheme and acting as marketing associates to
attract investors.
– Assisting the AMC to approach potential
investors through meetings, exhibitions, contacts,
advertising, publicity and sales promotion. 42

43. Investment Advisors
• Investment advisors carry out market and
security analysis.
• Advising the AMC to design its investment
strategies on a continuous basis.
• They are paid for their professional advice
regarding fund investment on the average
weekly value of the fund’s net assets.
43

44. Legal Advisors
• Legal advisors are appointed to offer legal
guidance about planning and execution of
different schemes.
• A group of advocates and solicitors may
be appointed as legal advisors.
• Their fee is not associated with net assets
of the fund.
44

45. Unit-5 Topic # 7
Underwriter according to SEBI guidelines
Who is underwriter
• Underwriting refers to the process that a large financial service
provider (bank, insurer, investment house) uses to assess the
eligibility of a customer to receive their products (equity
capital,insurance, mortgage, or credit)
• Mutual funds also undertake the activities of underwriting issues.
Such activities generate an additional source of income for mutual
funds. Prior approval from SEBI is necessary for undertaking such
activity
45

46. SEBI Mutual Fund Regulations
• The regulations governing the functioning of mutual
funds in India were introduced by SEBI in Dec 1996. The
objectives of these regulations was to bring in existence
the regulatory norms for the formation, operation and
management of mutual funds in India. The regulations
also laid down the broad guidelines on investment
valuation, investment restriction, advertising code and
code of conduct for mutual funds and AMCs.
46

47. Registration of mutual funds
• Every mutual fund shall be registered with SEBI
through an application to be made by the
sponsor in a prescribed format accompanied by
an application fee of Rs.25000.
• Every mutual fund shall pay Rs.25lakhs towards
registration fee and Rs:2.5lakhs per annum as
service fees.
• Registration shall be granted by the board on
fulfillment of conditions such as sponsor’s,
sound track record of 5yrs integrity, net worth
etc. 47

48. Regulations for the trust
• Mutual fund shall be constituted in the form of a trust under the
provisions of Indian Registrations Act and provisions laid down
by SEBI.
• A trustee should be person of integrity, ability, and should not
have been found guilty or being convicted of any economic
offence or violation of securities law.
• At least 50% of the trustees shall be independent trustees.
• The trustees and the AMC with SEBI’s prior approval shall
enter into an investment management agreement.
• The trustees shall ensure the AMC has the necessary
infrastructure and personnel.
• The trustees shall ensure that AMC is monitoring security
transaction with brokers.
• The trustees shall ensure that the EMC has been managing the
scheme independently.
• The trustees should fulfill all its duties in order to protect the
interest of the investors.
48

49. Regulations for AMC
• It should have a sound track record, reputation and fairness in
transaction.
• The sponsor or trustee shall appoint an AMC with SEBI’s
approval.
• The appointment of the AMC can be terminated by majority of
trustees or by 75% of unit holders.
• The directors of AMCs should have adequate professional
experience.
• At least 50% of the director’s of the AMC should not be
associated with the sponsors or it’s subsidiaries or the
trustees.
• The chairman of the AMC should not be trustee of any other
mutual fund.
• The AMC shall have a minimum net worth of Rs.10 crores.
• The AMC shall not act as an AMC for any other mutual funds.
49

50. Regulations for custodians
• The mutual fund shall appoint a custodian
to carry out the custodian services for the
schemes of the fund.
• The agreement with the custodian shall be
entered into with prior approval of
trustees.
50

51. Regulations for Schemes of mutual
funds
• All the schemes to be launched by the AMC should be approved by the
trustees and are to be filed with SEBI.
• The offer document should contain adequate disclosures to enable the
investors to make informed decisions.
• Advertisement of schemes should be in conformance with SEBI’s code.
• The listing of closed ended schemes is mandatory and it should be listed
on a recognized stock exchange within 6 months of its subscriptions.
• Units of close ended schemes can be opened for redemption at a fixed
interval.
• The AMC shall specify in the offer document the minimum subscription to
be raised under the scheme.
• The AMC may repurchase, reissue the units of close ended schemes.
• The units of close ended schemes can be converted into open ended
schemes.
• Any scheme on mutual fund shall not be opened for subscription after 45
days.
• The mutual fund and AMC shall be liable to refund the application money
51

52. Investment strategies
• Systematic Investment Plan (SIP)
– Invest a fixed sum every month. (6 months to 10 years-
through post-dated cheques or Direct Debit facilities)
– Fewer units when the share prices are high, and more units
when the share prices are low. Average cost price tends to
fall below the average NAV.
• Systematic Transfer Plan (STP)
– Invest in debt oriented fund and give instructions to
transfer a fixed sum, at a fixed interval, to an equity
scheme of the same mutual fund.
• Systematic Withdrawal Plan (SWP) 52

53. What is a Systematic Investment Plan?
An investment plan to invest a
fixed amount regularly at a
specified frequency say,
monthly or quarterly.
SIP is a simple method of investing used
across the world as a means to creating wealth
53

54. Benefits of SIP
• Regular
• Investments happen every month unfailingly
• Power Of Compounding
• Rupee Cost Averaging
• Forced saving
• Helps you overpower the temptation to spend fully
• Helps you build for the future
• Automated
• Completely automated process
• No hassles of writing cheque every month
• Light on the wallet
• Investment amount can be so small that you do not even feel the pinch
of it being directly deducted, yet the small amount is powerfully working
towards your financial security
54

55. Systematic Investing, An Example
9.40
6.93
6.46
7.57
8.31
9.10
8.93
8.018.12
8.75
9.35
7.60
2
3
4
5
6
7
8
9
10
Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04 Jul-04 Aug-04 Sep-04 Oct-04 Nov-04 Dec-04
106.39
units
154.75
units
When the price is highest,
you buy the least number of
units
When the price is lowest,
you buy the highest number of units
55

56. Simple plotting of closing price of BSE Sensex for the first of every month. The
time period considered here is from 1/1/1990 to 02/12/2005 Source:
Credence Analytics
Investing at Peak – SIP is the way
56

57. Start Early : SIP
A gap of 5 only years can result in a lot of difference in wealth creation !
Rs. 1000 invested per month @15% p.a. till the age of 60 yrs
4.20 3.60 3.00 2.40 1.80 1.20
148.61
70.10
32.84
15.16
6.77
2.79
-
20
40
60
80
100
120
140
160
25 30 35 40 45 50
Investment Wealth at 60
57

58. 58

59. Investing Checklist
• Draw up your asset allocation
– Financial goals & Time frame (Are you investing for retirement? A
child’s education? Or for current income? )
– Risk Taking Capacity
• Identify funds that fall into your Buy List
• Obtain and read the offer documents
• Match your objectives
– In terms of equity share and bond weightings, downside risk
protection, tax benefits offered, dividend payout policy, sector focus
• Check out past performance
– Performance of various funds with similar objectives for at least 3-5
years (managed well and provides consistent returns) 59

60. Checklist Contd…
• Think hard about investing in sector funds
– For relatively aggressive investors
– Close touch with developments in sector, review portfolio regularly
• Look for `load' costs
– Management fees, annual expenses of the fund and sales loads
• Does the fund change fund managers often?
• Look for size and credentials
– Asset size less than Rs. 25 Crores
• Diversify, but not too much
• Invest regularly, choose the S-I-P
– MF- an integral part of your savings and wealth-building plan.
60

61. Portfolio Decision
• The right asset allocation
– Age = % in debt instruments
– Reality= different financial position, different allocation
– Younger= Riskier
• Selecting the right fund/s
– Based on scheme’s investment philosophy
– Long-term, appetite for risk, beat inflation– equity funds best
• TRAPS TO AVOID
– IPO Blur
• Begin with existing schemes (proven track record) and then new schemes
– Avoid Market Timing
61

62. MF Comparison
• Absolute returns
– % difference of NAV
– Diversified Equity with Sector Funds– NO
• Benchmark returns
– SEBI directs
– Fund's returns compared to its benchmark
• Time period
– Equal to time for which you plan to invest
– Equity- compare for 5 years, Debt- for 6 months
• Market conditions
– Proved its mettle in bear market
62

63. Buying Mutual Funds
• Contacting the Asset Management Company directly
– Web Site
– Request for agent
• Agents/Brokers
– Locate one on AMFI site
• Financial planners
– Bajaj Capital etc.
• Insurance agents
• Banks
– Net-Banking
– Phone-Banking
– ATMs
• Online Trading Account
– ICICI Direct
– Motilal Oswal, Indiabulls- Send agents
63

64. Warning Signals
• Fund's management changes
• Performance slips compared to similar funds.
• Fund's expense ratios climb
• Beta, a technical measure of risk, also climbs.
• Independent rating services reduce their ratings of the
fund.
• It merges into another fund.
• Change in management style or a change in the
objective of the fund.
64

65. 65